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Coach Profits Rise 14.5% in 2nd Qtr.

The brand converted strength in its men's and international operations into bottom-line gains.

Coach

Enticing prices and burgeoning men’s and international businesses pushed Coach Inc. to a 14.5 percent jump in second-quarter income, driving shares of the New York-based handbag maker up 5.8 percent to $67.97 Tuesday.

This story first appeared in the January 25, 2012 issue of WWD.  Subscribe Today.

“There has been a structural shift in spending over the last decade, where women are spending more on accessories,” said chairman and chief executive officer Lew Frankfort, explaining that the category has grabbed share from apparel and grown 5 percent to 10 percent over the last year.

That said, Coach still struggled to improve on sales of handbags priced more than $400 during the quarter.

“We planned [bags priced $400 and above] to be less than last year, and the holiday quarter…is a very strong gift-giving quarter, where consumers are very sensitive to price point,” Frankfort told WWD. “We don’t think that’s a trend that’s indicative of anything more than mix.”

Shoppers continued to flock to bags priced around $300, or Coach’s “sweet spot,” said the ceo, noting that the flight to value isn’t indicative of a waning economy but instead a hunger for new ways to update their wardrobes.

“Consumer sentiment has really improved over the last 90 days, and actually 60 percent of consumers now in North America believe the economy is stable or improving, and that’s up from 48 percent just three months ago,” he said. “It’s also evident that consumers are beginning to borrow more and save somewhat less.”

This translated to second-quarter profits that expanded to $347.5 million, or $1.18 a diluted share, from year-ago net income of $303.4 million, or $1 a share.

Net sales for the quarter ended Dec. 31 rose 14.6 percent to $1.45 billion, from $1.26 billion a year earlier.
Coach exceeded analysts’ expectations of earnings per share of $1.15 on sales of $1.43 billion.

The retailer’s direct-to-consumer sales, which now include its Singapore business, increased 17 percent to $1.28 billion from $1.1 billion a year ago.

Comparable-store sales gained 8.8 percent in North America and 6 percent in Japan on a constant-currency basis. In China, comp sales continued to grow at a double-digit rate.

Some of this success is due to the retailer’s men’s business, which is on track to double again in fiscal 2012 to over $400 million globally, or roughly 8 percent of annual total sales, Coach said. The company sees men’s growing to $1 billion in sales in the next three to five years.

Coach has opened 21 North American stores so far in fiscal 2012 and plans to add another 19 before the year is out.

The brand plans to expand its door count in China by roughly 30 and focus on its men’s business there, which the company called a “massive opportunity.” The new stores will all include both men’s and women’s merchandise.

Currently, Coach has 65 stores in China, of which 28 are dual gender. Overall, Coach said it will “continue to drive its business at a double-digit pace.”